UK MMRC - Notice 744B Freight transport and associated services December 2009

UK MMRC - Notice 744B Freight transport and associated services December 2009

Foreword

This notice cancels and replaces Notice 744B (February 2006). Details of any changes to the previous version can be found in paragraph 1.1 of this notice.

1. Freight transport and related services

1.1 What is this notice about? - It explains in detail the VAT liability of freight transport and related services.

This notice has been rewritten to take into account the changes made in the 2009 Finance Act which brought in substantial changes to the place of supply of services rules from 1 January 2010.

1.2 What is 'freight'? - Freight includes:

  ♦  goods/cargo

  ♦  mail

  ♦  documents

  ♦  unaccompanied vehicles, and

  ♦  vehicles transported on ships, which are charged at a 'driver accompanied' rate.

1.3 How do I determine the VAT liability of freight transport and related services? - You have to consider all the following three points in order:

  ♦  the status of your customer- see section 2

  ♦  the place of supply of your services – which follows the status of the customer- see section 3 , and

  ♦  the liability of the supply – which follows the place of supply of your services- see section 4.

What is the 'business' status of your customer?

2. The first step in determining the place of supply of your freight transport and related services is to establish whether your customer is 'in business', or not, for the purpose of receiving the supply. Whether your customer is 'in business' is a wide test and is not confined to customers within the UK or the EC but anywhere in the world, nor is it confined to customers that are VAT registered.

A more detailed explanation and examples of when a customer is or is not 'in business', and suggestions for evidence to be held can be found on Notice 741A Place of supply of services.

3. Place of supply

3.1 Customer 'in business' - Freight transportation and related services fall under the general rule when supplied to customers 'in business'. From 1 January 2010 the general rule is that the place of supply of services to a person who is in- business is the place where the customer belongs for the purposes of receiving your supply. It does not matter where the goods being transported move from or to, or where any related service physically takes place.

For example:

Customer is in-business in:	Place of supply of freight transportation and related service is:
France and goods move within France	♦  France
Australia and the goods move from Australia to the UK with related transport services undertaken in France	♦  Australia
United Kingdom and the goods move from Canada to China	♦  United Kingdom
Holland and the goods move from Italy to Ireland where you supply a related transport service	♦  Holland

3.2 Customer not 'in business' - Freight transportation and related services when supplied to customers who are not 'in business' is largely unchanged from before 1 January 2010.

That is, the place of supply of freight transportation

  ♦  from the EC to a third country takes place where the transportation is performed in proportion to the distances covered

  ♦  Intra-EC transportation takes place wholly where the transportation begins, and

  ♦  the place of supply of related services takes place where physically performed.

For example:

Non-business customer is in:	Place of supply of freight transportation and related service is:
France and goods move within France	♦  France
Australia and the goods move from Australia to the UK with related transport services undertaken in France	♦  Australia and the UK and any other country transited. The related transport services are supplied in France
United Kingdom and the goods move from Canada to the China	♦  Canada, China and any other country transited
Holland and the goods move from Italy to Ireland where you supply a related transport service	♦  Transport related service is supplied in Ireland

3.3 Intra-EC transportation that transits a non- member-state - Freight transportation between EC member states that involves transiting a non-EC member state (for example Sweden to UK via Norway) is to be treated as intra-EC transportation.

3.4 What is the position of a sub-contractor to the main supplier of freight transportation or related services? - If you are a subcontractor supplying freight transportation or related services to a main contractor then the place of supply of your services will be determined by the status of your immediate customer and not that of the ultimate customer of the main contractor.

For example a French company moving goods from Italy to Ireland for a UK Company will have a place of supply of freight transportation in the UK as that is where the customer belongs. If you are sub-contracted to move these goods from Dover to Holyhead for the French contractor the place of supply of your freight transportation services is France as that is where your customer belongs.

4. VAT Liability

4.1 Place of supply is the UK - If the place of supply of freight transportation or related services is the UK then the supply will be standard rated, except:

  ♦  for the supply is of transportation or related services connected with an import or export from the EC (see section 5), or

  ♦  the actual movement of goods is from to or between the islands of The Azores or Madeira or the related service is physically performed on these islands (see section 7), or

  ♦  the supply is of handling or storage of ship or aircraft cargo (in certain places) (see section 8),

when the liability will be zero-rated.

4.2 Place of supply is outside the UK - If the place of supply is outside the UK then the supply is outside the scope of UK VAT and there is no VAT liability within the UK. However, you will be able to recover any input tax incurred in making the supply, subject to the normal rules. Further information on input tax can be found in Notice 700 The VAT Guide. You may have a liability to VAT register in other EC member states where you make the supplies.

4.3 Accounting for VAT - The procedure for accounting for VAT and who accounts for it will depend on the circumstances of the transaction.

  ♦  If the supplier is located in the same member state as the place of supply he charges and accounts for the VAT due as a domestic supply.

  ♦  If the place of supply moves to an EC member state because that is where a customer who is in-business is located then the customer must account for the VAT as a reverse charge. See section 11 for more information on reverse charges

  ♦  If the place of supply moves to where the transport of the goods for a person not in-business begins then the supplier may have to register for VAT in the member state of supply, see Notice 700/1 Should I be registered for VAT? If the place of supply is the UK.

  ♦  If the place of supply is outside the EC then the supply is outside the scope of VAT in any member state.

5. Import/export and non-EC freight transport

5.1 What is import/export and non-EC freight transport? - For the purpose of this section import/export and non-EC freight transport means the transport of goods:

  ♦  between the EC and non-EC countries, or

  ♦  wholly outside the EC.

5.2 What is the place of supply of this freight transport? - The place of supply of import/export and non-EC freight transport follows the rules set out in sections 2 and 3.

5.3 What is the VAT liability of import/export and non-EC freight transport? - Where the place of supply is the UK the law zero-rates:

  ♦  the supply of transportation of goods from a place within to a place outside the EC and vice versa

  ♦  the transport, handling and storage of goods, when they are supplied in connection with a journey from the place of importation to their destination either within the UK or within another member State (to the extent that those services are supplied in the UK)

  ♦  The transport, handling and storage of goods, when they are supplied in connection with a journey from their origin either within the UK or within another member State to the place of export (to the extent that those services are supplied in the UK).

Handling and storage is covered in section 8.

5.4 What is the meaning of 'destination' and 'origin'? - 'Destination' is the furthest specified place in the UK or other member state to which the goods are consigned at the time of importation. It is the place stated on the consignment note or any other document by means of which the goods are imported. These are often known as the delivery terms, which are explained further at paragraph 5.5.

When that place is unknown, the destination is the place of importation.

'Origin' is the place from within the UK or other member state from which the goods are first consigned for export.

When that place is unknown, the origin is the place of exportation.

Goods consigned to:	Destination is
Goods arriving at Felixstowe and consigned to Birmingham	Birmingham
Goods arrive at Heathrow to await further instructions	Heathrow.
Goods consigned from:	Origin is
Goods for export consigned from Newcastle to Sydney	Newcastle
Goods moved from Manchester to Southampton before they are consigned for export	Southampton

However, the service(s) must be supplied in direct connection with an import or export.

5.5 What are the delivery terms? - The main delivery terms used in the UK: are:

A complete list of delivery terms is given in Notice 252 Valuation of imported goods for customs purposes, VAT and trade statistics.

5.6 Do you have examples of services connected with imports and exports that are zero-rated?

To the extent that the place of supply is the UK and the…	It is…
transport is from Birmingham to Dover of goods to be exported from the France to Algeria	zero-rated it is a supply in connection with an export from the EC
shipping of goods from the USA and imported into Ireland	zero-rated it is a supply of transportation from outside to within the EC
storage of goods being exported from Holland to Norway	zero-rated it is a supply of storage in connection with an export from the EC
transportation of goods from South Africa to Spain of goods consigned to Switzerland	zero-rated it is a supply of transportation into the EC notwithstanding that the goods are destined for Switzerland
Handling of goods at Heathrow that are in-transit from Canada to Norway	zero-rated Heathrow is a Customs and Excise airport. (see paragraph 8.2)
flying of goods from Australia to New Zealand	standard-rated it is not a supply in connection with transportation or import into or out of the EC

5.7 What documentary evidence do I need to hold to show that my services form part of an import or export movement? - If you provide such services you should hold satisfactory evidence that you are providing a service connected with a specific import or export of goods in the form of commercial documentation.

The list below is not exhaustive. If you have difficulties in obtaining these documents, you should contact our Helpline. Details about 'satisfactory evidence' for exports are also given in Notice 703 Exports and removals of goods from the United Kingdom.

Main forms of documentary evidence include	Additionally, a combination or all of these may provide suitable evidence
contracts or agreements	inter-company correspondence
consignment notes	the customer's order documentation
bills of lading	payment details
certificates of shipment	sales invoices
air / or seaway bills	advice notes
Customs declaration forms C88 (SAD)

5.8 Under what circumstances are services connected with imports or exports not zero-rated? - The following services when connected with imports are not zero-rated:

  ♦  services, which are unconnected with a movement of goods from a place outside the EU to a place within the EU or vice versa

  ♦  the transport of goods after their arrival at the destination. For example, the transport after arrival at a warehouse (the destination they were consigned to), where the customer is known but the further destination elsewhere in the UK is not known. When the goods are at some later date called off for consignment to (say) a branch, the transport and any related services cannot be zero-rated

  ♦  services connected with goods which have not specifically been consigned for export at the time of transportation

  ♦  the handling of goods after they have been unloaded at the destination

  ♦  the storage of goods at the destination, unless the storage meets the conditions in section 8.

6. Related transport services

6.1 What are related transport services? - These include the following services when they relate to the transport of goods:

  ♦  loading, unloading or reloading

  ♦  stowing

  ♦  opening for inspection

  ♦  cargo security services

  ♦  preparing or amending bills of lading, air or sea-waybills and certificates of shipment

  ♦  packing necessary for transportation, or

  ♦  storage.

6.2 What is the place of supply of related transport services? - The place of supply of related transport services follows the rules set out in sections 2 and 3.

6.3 Accounting for VAT on related transport services - The procedures for accounting for VAT are set out in section 4.

7. Intra-EU freight transport and associated services between member States and the Azores and Madeira

7.1 Why are the Azores and Madeira treated differently from other member States and their dependencies within the EU? - When Portugal joined the EU on 1 January 1993, the European Commission decided that freight transport services to and from the Azores and Madeira should be treated differently from supplies of intra-EU freight transport.

7.2 What freight transport supplies does this section cover? - It covers the transport of goods:

  ♦  to or from the Azores or Madeira to a place elsewhere in the EU, or

  ♦  between the Azores and Madeira.

7.3 What is the place of supply of intra-EU freight transport to the Azores and Madeira? - This is the same as the place of supply for intra-EU freight transport – see sections 2 and 3.

7.4 What is the UK VAT treatment for intra-EU freight transport to the Azores and Madeira? - It is zero-rated to the extent that the transport services are treated as supplied in the UK.

7.5 What is the UK VAT treatment for transport related services and intermediary services supplied in connection to freight transport to the Azores and Madeira? - These are zero-rated to the extent they are treated as supplied in the UK.

8. Handling and storage services in connection with ship and aircraft cargo

8.1 What are handling and storage services in connection with ship and aircraft cargo? - Here are some examples of handling and storage services:

  ♦  cargo security services

  ♦  container handling for which a box charge is made

  ♦  demurrage

  ♦  loading stores and discharging empties

  ♦  loading, unloading, reloading, stowing, securing and shifting cargo

  ♦  preparing or amending bills of lading, air / or sea-waybills and certificates of shipment

  ♦  preparing or amending customs entries

  ♦  presenting goods for customs examination

  ♦  sorting, opening for inspection, repairing and making good, weighing and taring, taping and sealing, erasing and re-marking, labelling and renumbering, tallying, checking, sampling, measuring or gauging of goods

  ♦  stevedoring and porterage

  ♦  survey of cargo (including damaged cargo), or

  ♦  the movement of goods to or from a ship by lighter.

8.2 How should I treat handling and storage services relating to ship and aircraft cargo? - The handling and storage of ship and aircraft cargo may be zero-rated provided the service is physically performed in the UK:

  ♦  in a port (see paragraph 8.3)

  ♦  on land adjacent to a port (see paragraph 8.3)

  ♦  in a customs and excise airport (see paragraph 8.4), or

  ♦  in a transit shed (see paragraph 8.5).

However:

  ♦  the grant of a licence to occupy land to store goods in a specific area, as distinct from the service of storing them, may be exempt from VAT. (Further information on this is given in Notice 742 Land and property.)

  ♦  paragraph 8.6 covers handling and storage services relating to imported and exported goods

  ♦  paragraph 8.7 covers related services that are excluded from zero-rating.

8.3 What is the meaning of 'port' and 'land adjacent to a port'? - 'Port' means any port appointed for customs purposes and the ports so appointed between them include all UK territorial waters up to the mean high water mark and the inland water as far as the tide flows together with associated docks and harbours.

The water of the Manchester Ship Canal between the Mersey and Manchester is also a customs port.

The legislation defining the ports does not include any land so 'Land adjacent to a port' means the immediate quay-side and any warehousing/storage facilities thereon.

8.4 What is the meaning of 'customs and excise airport'? - 'Customs and excise airport' means an airport designated for the landing or departure of aircraft for the purposes of the Customs and Excise Acts by an order in council. The limit of a customs and excise airport is normally the boundary of the airport itself. A list of customs and excise airports is given at paragraph 8.8.

8.5 What is the meaning of a 'transit shed'? - A transit shed is a place approved by Customs for the deposit of goods having the status of goods in temporary storage. Goods are in temporary storage until they are assigned to a customs-approved treatment or use. An example of the latter is placing the goods under a customs procedure, such as entry to 'free circulation'.

Further information can be found in Notice 199A Temporary Storage.

8.6 What about handling services relating to goods that have been imported from or are to be exported to, a place outside the EU? - The goods handling services may qualify for zero-rating if the goods concerned have been imported from, or are to be exported to, a place outside the EU – see section 5.

8.7 Are there any services which are excluded from zero-rating? - Yes, the letting on hire of any goods including cranes or other lifting equipment is not zero-rated, even though the hire takes place in a port or airport.

8.8 Do you have a list of designated customs and excise airports?

This is the list of designated customs and excise airports:
Aberdeen	Farnborough	Manston
Belfast International (Aldergrove)	Filton	Newcastle
Biggin Hill	Glasgow	Newquay
Birmingham	Humberside	Norwich
Blackpool	Leeds Bradford	Plymouth
Bournemouth	Liverpool	Prestwick
Bristol	London City	Sheffield City
Cambridge	London Gatwick	Shoreham
Cardiff	London Heathrow	Southampton
Coventry	London Luton	Southend
East Midlands	London Stansted	Sumburgh
Edinburgh	Lydd	Teesside
Exeter	Manchester

9. Intermediary services

9.1 What are intermediary services? - This is where you act for, or represents someone else (the principal) in the making of arrangements for a supply of Freight transportation or a related service as covered in this notice.

Further information about intermediaries can be found in Notice 700 The VAT Guide and Notice 741 place of supply of services.

9.2 What is the place of supply of intermediary services relating to freight transport and related supplies? - The place of supply of intermediary services follows the rules set out in sections 2 and 3 as they relate to your customer, 'the principal'.

9.3 What is the VAT treatment of intermediary services? - If you are the initial intermediary who is involved in the making of arrangements of the services covered in this notice and the place of supply of your services is the UK then the liability of your supply will be zero-rated when you make arrangements for:

  ♦  the supply of space in a qualifying ship or aircraft, or

  ♦  the supply of handling, storage or transportation of goods imported to or exported from the EC as set out in section 6, or

  ♦  the supply of handling or storage services as set out in section 8.

In all other cases the liability of the supply will be standard rated.

For more information on the meaning of qualifying see Notice 744C Ships, aircraft and associated services.

9.4 Do you have some examples of intermediary services relating to the supply of freight transport or related services? - Yes, some examples are below.

  ♦  If you arrange for a supply of freight transport that takes place wholly in France, for a UK customer that is not in-business, the place of supply of your service is France. You, as the supplier of the intermediary service, may be required to account for the VAT on your supply in France.

  ♦  If you arrange for a supply of freight transport to export goods from France to the USA, for a UK customer that is in-business, the place of supply of your service is the UK. The service being arranged is for the exportation of goods from the EC so is zero-rated.

  ♦  If you arrange for a supply of freight handling at Felixstowe docks for a UK customer that is not-business, the place of supply of your service is the UK. The service being arranged is the handling, in a port, of goods carried on a ship so is zero-rated.

9.5 What if I receive intermediary services?

If you are in-business in the UK and receive intermediary services the principles set out in paragraph 4.3 will apply.

10. Freight forwarders

10.1 Are there any special VAT rules for freight forwarders? - There are no special rules for the VAT treatment of freight forwarders. You will have to look at the services you are providing on an individual basis, in order to determine how they should be treated for VAT purposes.

10.2 What do I need to consider in determining the VAT treatment of my supplies as freight forwarder?

To determine the VAT treatment of your supplies you will need to consider the following:
Am I acting as a principal or an intermediary?	As freight forwarder you may provide a variety of supplies either acting as an intermediary in arranging supplies between two other parties or supplying the services as a principal – see section 9.
Am I making a single supply?	If you act as a principal, it is likely that you provide your customers with a number of services in relation to a single transaction or contract. In such circumstances, your services may form a single supply for VAT purposes. Where you are making such a single supply, its VAT treatment should be determined according to the overall essential nature of the supply. See also paragraph 10.4.
Am I making multiple supplies?	Your services may constitute more than one supply. You will need to consider the treatment and VAT liabilities of such separate supplies on an individual basis. Similarly, if you are an agent, you may be arranging one or more supplies. This can affect both the place of supply and the liability of your services. See also 10.4.
What is the place of supply for my services?	See sections 2 and 3
What is the VAT liability of the services I am providing?	This will depend upon: ♦  the nature of the services you are providing, and ♦  the place of supply for these services.

10.3 Do you have relevant examples of supplies made by freight forwarders? -Some examples are:

Description	Nature of supply	Place of supply and VAT liability
You are asked to arrange for goods to be imported from the USA on behalf of a UK non-business customer. You buy in the international transport, arrange insurance, arrange customs clearance, pay the import transport from the place of importation to your customer's premises.	You are regarded as making a single supply of international transport.	Your supply is zero-rated to the extent that the transport takes place in the UK. The rest of the journey is outside the scope of UK VAT (see paragraph 3.2). The payment of import duty is a disbursement and is outside the scope of VAT (see paragraph 10.4).
A UK business customer asks you to arrange delivery of their goods from Paris to Birmingham. You buy in the transport and arrange for overnight storage at Dover.	You are making a single supply of transport with associated handling and storage,	the place of supply of which is the UK (see paragraph 3.1). Your supply is standardrated.
A UK customer has arranged to have goods exported to Australia. You are asked merely to arrange for a haulier to take the goods to the airport.	You are acting as an intermediary in the making of arrangements of international freight transport. The haulier is making supplies of transport in connection with an export.	Your supply is zero-rated (see section 9). The haulier's supply is zero-rated (see section 5).

10.4 How should I treat disbursements such as payment of customs duty? - Disbursements, such as payment of customs duty, are outside the scope of VAT and should normally be identified separately on your invoice. This does not apply to expenses you incur in making your supply, such as postage and telephone costs, these form part of the consideration for your supply (whether your supply is standard or zero-rated), even if separately itemized on your invoice. Further information on disbursements is given in Notice 700 The VAT Guide.

11. Reverse charge

11.1 What is the 'reverse charge' procedure? - This is a simplification, which means that overseas suppliers do not register and account for VAT on supplies made in the UK to customers that are in-business in the UK.

11.2 How does the 'reverse charge' operate? - If you receive services to which the reverse charge applies, you, the customer, must account for VAT as if you were the supplier of the services. You will need to credit your VAT account with an amount of output tax, calculated on the full value of the supply you have received and at the same time, debit your account with the input tax to which you are entitled, in accordance with the normal rules.

Customers that are not VAT registered must add the value of the supply received to their business turnover for the purpose of deciding whether they need to register for VAT. See notice 700/1 Should I be registered for VAT?

Further information on input tax is given in Notice 700 The VAT Guide and further information on reverse charge is given in Notice 741 Place of supply of services.

If you have a question about VAT, Excise or Customs duty

Phone 0845 010 9000 Monday to Friday 08.00 – 20.00.

Go to www.hmrc.gov.uk

Os hoffech siarad â rhywun yn Gymraeg, ffoniwch 0845 010 0300, Llun i Gwener 08.00 – 18.00. If you are hard of hearing or speech impaired and use a Textphone, phone 0845 000 0200.

Do you have any comments or suggestions?

If you have any comments or suggestions to make about this notice, please write to:

HM Revenue & Customs

Place & Time of Supply Team

3rd floor

100 Parliament Street

London

SW1A 2BQ

For general enquiries, please go to www.hmrc.gov.uk or phone the Helpline.

Putting things right

If you are not satisfied with our service, please let the person dealing with your affairs know what is wrong. We will work as quickly as possible to put things right and settle your complaint. If you are still unhappy, ask for your complaint to be referred to the Complaints Manager. For more information about our complaints procedures go to www.hmrc.gov.uk and under 'quick links' select 'Complaints'.